I am assuming from your question that these new reps will be on 100% commission plans eventually (no base). So your question is how to structure the draw to give them some income while they fill their pipeline and get those first few sales.
To be specific enough to be helpful, I’m going to make some assumptions that will almost certainly be wrong for your roles, but you can substitute the right numbers to get your own answers. So let’s assume your intended total earnings at the expected level of productivity for the new Inside role is $48k/year, which would be $4k/month. Let’s also assume that you’re working with a two month sales cycle so that you wouldn’t expect a new rep to sell anything the first month; they might sell a little bit the second month; then by the third month they should have some real sales coming in, and really start to hit their stride in the fourth month.
If this were the case, I would recommend a guarantee designed to provide about 2/3 to 3/4 of target compensation. So let’s assume it would be 3/4 of target compensation.
Pay $3k as a guarantee (= 3/4 of $4k).
Assume they might close enough business to earn $1k (1/4 of expected eventual productivity), then pay $2k as a guarantee (= (3/4 of $4k) – $1k they should be able to earn).
Assume they might close enough business to earn $3k (3/4 of expected eventual productivity), then no guarantee is needed ( (3/4 of $4k) – $3k they should be able to earn = $0).
And from that point on, they are on the standard commission plan.
I suggest making this a guarantee rather than a draw. A draw is a payment advanced against future earnings. If you don’t feel they could possibly earn enough to stay with you in the first few months, and if you treat any payments during those months as a draw, then they will start their productive period in arrears, owing the company money. It also gets really crazy to keep up with the calculations.
Some people make the draw non-recoverable, but won’t pay any commission in excess of the draw unless the total calculated commission is greater than the draw. This actually incentivizes people to hold orders until they get past their draw period, unless they expect to spectacularly out-perform the draw amount.
Notice that the guarantee amount is less than the compensation level you feel is right for the role. So the message here is that the company is investing in the employee (paying for them to learn to sell and fill their pipeline) while the employee is investing in the company (working for somewhat less than their market value in anticipation of earning more when they are fully productive). But there is no disincentive to sell as much as possible as early as possible, as this will only add to earnings for the employee (and to sales for the company).
In this example, the company has invested $5k in paying a sales person who has not sold anything to earn that. It’s a modest investment to start your sales person out feeling supported and eager to sell. However, the new sales person’s success at mastering your offering and starting to fill that pipeline with good opportunities should be monitored closely in the first weeks and months to ensure that the guarantee “invested” has the promise of a solid return.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.